"The further rise in housing starts in October confirms that the previous month’s very strong gain was not an unsustainable surge," Paul Diggle, an economist with Capital Economics, wrote in an emailed analysis.

The new construction numbers underscore recent improvement in national housing data as home prices and demand have risen while supply has shrunk.

On Monday a real estate group reported that sales of existing homes increased 2.1% in October. A measure of home-builder confidence also jumped in November to its highest level since 2006, a builder group reported.

The rise in new construction indicates builders are looking to capitalize on demand for housing.

Building permits, another measure of demand, dropped 2.7% to a rate of 866,000 units last month. That is 29.8% above the October 2011 estimate.